Adverse Selection v Moral Hazard

Winner: Moral Hazard.

What the heck am I talking about?  ObamaCare.  Specifically, we're discussing the fact that ObamaCare requires that the young and healthy make up a significant portion of enrollees.  For ObamaCare to "succeed" in any sense of the word (right now, it's failing in every sense of the word), young, healthy people must sign up in droves, paying much higher premiums for much worse coverage than they could have gotten just a year ago.  Those who already had insurance will often look at the new numbers and say, "never mind."  Those who didn't already have coverage are not suddenly going to think it's a great idea to pay yet more than they'd already rejected.

The choice to do something against your own good is called "Adverse Selection."  ObamaCare relies heavily on Adverse Selection by Millennials.

On the other hand, we have "Moral Hazard."  Moral Hazard is a situation in which one makes different decisions based on the "rules" in order to gain the maximum benefit at the minimum cost.  In the world of D&D we call this "min-maxing."  With ObamaCare the idea looks like this- insurance companies cannot reject me because of any health reason, and preexisting conditions must be covered.  Given the high premiums for substandard benefits compared to the low level of "punishment" that is the Penalty (or Tax, if you're CJ John Roberts) for non-compliance with the individual mandate, it makes far more sense to go without insurance and the penalty.  If you *do* happen to get sick (in a way that costs more than your premium and deductible combined) then you can sign up for insurance at that time and, poof, you're covered.

This is a no brainer.  Why would a healthy Millennial buy insurance through the exchanges?  Pay higher prices for less coverage just so some geriatric patient in Walla Walla can afford their meds?  Obviously the people who wrote this law don't understand human nature (except they do- more on that in a minute).  Oh, certainly some will buy.  Some will think it's a "hedge against disaster" (but, by the current rules, it's not).  Some will think it's "the moral thing to do" (really?  I'm morally obligated to buy insurance so some other guy's insurance will be cheaper?  Wouldn't it be cheaper for me just to send him 50 bucks a month?)  But the vast majority will look at their ever-diminishing buying-power (thanks ObamaNomics!) and make the practical decision to forego insurance.

If this were a boxing match, Moral Hazard would win in 1.2 seconds.  Or would be ejected for hitting below the belt.  One or the other.

Now, previously I stated that the people who wrote ObamaCare don't understand human nature.  That was what we call "dramatic license" or "a lie."  Of course they understand human nature.  In fact, they're counting on it.  Remember what Obama himself said- ObamaCare would be "a first step" to single payer.

Never forget that is their end goal.  They PLAN for ObamaCare to fail.  They want Medicaid overloaded so that the states can't cope.  They want private companies that sell through the exchanges to go under.  They want everything to collapse so that the American People will yell "Save Us!!!!" and then they can implement single payer.

In response, we have two options.  The first is to try to overcome human nature and go all-in on ObamaCare.  Make it work despite itself.  The problems with that plan don't even bear investigating, but let's just say they're myriad.

The second option is to make sure everyone knows that A) ObamaCare is a complete failure, B) Democrats own it completely, and C) that it is those same Democrats who will come in with "single payer" to make it all better.  That is, we have to expose the ploy now, not wait until Democrats are already calling for single payer.  Just as we called out all of the flaws in ObamaCare starting 3 years ago, now we ALSO have to call out their next move.

Conservatives (and coincidentally Republicans) have a lot of credibility on this right now.  Everyone knows Conservatives were saying exactly what has happened would happen.  Even the MFM has to admit it- albeit in terms of "they sabotaged the law!!!!"- so when Conservatives are challenged about single payer being the next step, it should be fairly easy to rejoin, "Just like we were wrong about you not being able to keep your plan or your doctor?  Just like we were wrong about premiums going up and benefits going down?"

If we don't use that credibility now- if we don't establish it as firm fact- then the Democrats will win on the issue.  Single Payer- and all its nightmarish horror- will become law in the United States of America.  Possibly in my lifetime.

Just Kill It, Already Revisited

In my previous series of posts, 'Just Kill It, Already,' I exposed three of ObamaCare's "popular" provisions and explained why they needed to go.  Showing that they still don't get it, the New York Times has a piece from Monday, July 30th, breathlessly reporting about rebates that Insurance Companies are forced to pay if they spent less than 80% of collected premiums on reimbursements.  They mention, in passing, that this will cost the insurance industry $1.1 Billion.  Yep.  That's a 'B' on that word.

Now, I have several problems with this little nugget, and we'll address them, but first I need to address a problem I have with Americans in general, or, at least, with those interviewed for this story.  The problem is encapsulated in this paragraph:

"It almost looked like junk mail," said Ms. Harkenreader, a tax accountant in Mountain Top, Pa., who said she did not love the overall law but was pleased with the unexpected windfall.  "If this is part of Obamacare, I'm happy that somebody is finally coming down on the insurance companies and saying, 'Look, let's be fair here.'"

Fair, Ms. Harkenreader?  Fair?  You want fair, how about you pay 100% of your own medical bills?  I'm willing to bet your patient responsibility plus your premiums is far less than you would pay in normal medical treatment each year.  If you think what you're getting charged is so "unfair," look for a different insurance company.  If that still doesn't work, then stop buying insurance and pay it all yourself.  You'll learn really quickly what "fair" looks like.

Now, then, that said, let's look at the problems with this policy.

Insurance Companies Need That Money
The first and foremost problem with this policy is that the insurance companies were actually using that money.  They were paying employees, yes, but they were also developing new products and strategies.  Many of them were adding it to savings accounts so they could remain solvent if something catastrophic occurred where they didn't make money for some reason.

Remember, Insurance is about risk.  The Insurance companies are accepting the risk that you will get sick, or will be injured, or any number of things.  Act of God exclusions aside, if something catastrophic occurs, the Insurance companies will be out a great deal of money.  They save up for just such an occurrence.  That's something I'd think we'd all support, given what happened to the Mortgage companies not too many years ago.

It Punishes Their Success
Name another industry that has to give rebates to its customers for successfully shepherding their investments.  Seriously, that's what this amounts to.  Even worse than that, though, is this: virtually every insurance company in the United States now has some "wellness" program which provides resources and incentives for its subscribers to get healthy- from losing weight, to smoking cessation programs.  When these programs (which cost money) are successful, claims decrease.  This policy provides a disincentive for continuing such programs.

It Makes Insurance Companies The Enemy
By forcing the insurance companies to make these ill-advised (for the reasons above, among others) payments, it fosters exactly the sentiments of the Ms. Harkenreaders of the world.  The payments are not a nice thing they receive because they didn't use as much health care.  Rather, they are something the insurance company stole from you.

This kind of divisiveness is the hallmark of Liberalism.  Liberalism cannot survive when people realize that they are responsible for their own behavior and circumstances, and that no "evil corporation" is out to get them.  Fostering this distrust is in the best interest of Liberals, because it then leads to people asking for "more regulation" and more laws.

It Makes Employers The Enemy
Hidden within these rules is the fact that most of these checks won't go out to individuals.  They will, instead, be issued to the employers who actually pay for the insurance.  What those employers do with the money is then up to them.

This puts employers in a Catch-22.  They can't count on those premiums, so they can't issue raises.  If they try to divide the rebates, someone will always be mad because they think they didn't get their "fair share."  If they keep the money, they're an "evil corporation" that is just in it for "the profit."  In short, no matter who wins, the employer loses.

It Misses The Point
It's quite obvious that politicians don't understand health insurance.  I was in the industry for years, and I only just scratched the surface.  The fact is that insurance companies still have to be competitive, even with the restrictions imposed upon them by the US Congress.  These restrictions include, but are not limited to, the inability to sell across state lines, and various coverage mandates.

Despite this, insurance companies, especially those catering to businesses, have to remain highly competitive.  Any that do not will lose subscribers, and eventually go out of business, just like any other business which fails.  So when an insurance company charges a premium, that amount is calculated fairly precisely to do three things.  First, to help spread the risk associated with the policy so that all legitimate claims are covered.  Second, to pay administrative costs like facilities, utilities, and payroll.  Third, to reinvest in the company, either through new offering R&D or by saving against future claims.

This policy completely ignores the third part.  Without that money, though, new products don't come to market.  Health Savings Accounts were not an invention of Government; the Government took an idea Insurance Companies had created and proven to work, and modified it to work for Government (for a given value of "work.")  Those same wellness programs previously mentioned cost money, but provide no revenue.  Insurance companies have to have a hedge against disaster.  The policy completely ignores all of these things in pursuit of the kind of divisiveness that Liberals love.

Rebates from insurance companies are not something to rejoice over, but yet another symptom of the disease that is ObamaCare.

Just Kill It, Already: Guaranteed Issue

So, today's offering at the Axiom Report will cover Guaranteed Issue.  In light of yesterday's horrendous decision on Obamacare, this is, if anything, even more important.  Already there are Republicans who want to repeal most of the law, but want to leave in these "popular provisions" we've been discussing.

Guaranteed Issue is poison.  Apparently no one in Washington, DC has ever heard the term "Moral Hazard."  Guaranteed Issue, without a mandate (which any repeal bill would remove), will kill the private insurance industry.

I'll update this post when the new article is up.

Just Kill It, Already: Pre-Existing Conditions

A couple of days ago at the Ace of Spades HQ, we got into a discussion about the provision of Obamacare which would require immediate coverage of pre-existing conditions.  On one side were myself and friend-of-the-blog tsrblke, on the other were AoSHQ commenter 'rockmom' and maybe one or two others.

The problem with this provision is that it seems so necessary.  Those evil insurance companies "wrote the bill" after all, and they must have been okay with this provision being in there.

That is a misconception of what happened.  Yes, the health insurance companies saw that some national health care bill was going to be passed.  Yes, they provided their input, in the form of pre-written provisions that would screw them over the least.  Yes, they eventually backed Obamacare.  None of them wanted it, and they would all have been much happier had it not passed.

People look at Barack Obama today, against a highly antagonistic House, and forget how much power the Democrats wielded in 2009 and 2010.  Some form of Federal health care bill was going to be passed; it only made sense for the insurance companies to help craft the bill.  For one thing, few people know health insurance like the health insurance companies.  For another, they would really like to survive.

When combined with Guaranteed Issue, and separated from an Individual Mandate, the immediate coverage of pre-existing conditions will kill private insurance.  My more-or-less educated guess is that they would not survive a decade.  Today's offering at The Axiom Report (to be linked when posted there update: linked) explains what pre-existing conditions really are, how they're covered today, and why immediate coverage of all pre-existing conditions is so bad.

Click over and read the whole thing.

Just Kill It, Already: Dependent Coverage

The next post in my continuing series: Just Kill It Already, should be up sometime this morning on The Axiom Report.  In today's column, we'll be talking about Dependent Coverage. (update: up already.  That was fast)

This is really a hard one for some people to accept as being "bad."  Most States already mandated coverage of Dependents to some extent, for one thing, and they just don't see how that's bad for the insurance companies for another.  The short version is: the people you want to be insured probably still won't be, and more of the people you don't want to be insured probably will.  That's going to affect what everyone pays in premiums, as well as the benefits offered by the insurance companies.

Some, though, go further.  They blame the insurance companies for the mess we're in.  First off, I do not accept that we're in any "mess" at all.  As I've said in this space before: You Have No Right To What Someone Else Must Provide.  Secondly, however, blaming the insurance companies for doing what makes the most sense so they can make a buck is hardly justified.  If you want to "blame" someone, blame FDR and the wage controls of the late 30's and 40's.  If you want to "blame" someone, blame government for their ever more intrusive coverage mandates.

But no matter who you blame, you cannot change the fact that, today, the vast majority of Americans rely on a Third Party Payer (that would be "health insurance company" for any Liberal readers) to pay their medical bills.  Anything that threatens that paradigm without having something solid in place to replace it is going to cause a great deal of misery, and simply open the door for another attempt at socialized, or even Single Payer, health care.

Just Kill It Already

Beginning my new series of posts about the popular provisions of Obamacare, you should find the first up on The Axiom Report (see my side bar) today.  I'll update this post when it goes live. Update- It's Live

The first post is fairly information dense and it sets up a lot of things you'll need to know for the rest of the posts to make sense.  So here's the Reader's Digest version, but really do click over and read the whole thing.

1- There are essentially 3 kinds of Health Insurance Plans: Fully Funded Group, Fully Insured Group, and Personal.

2- The only two that insurance companies get to use to spread their own risk are the Fully Insured Group and Personal policies.

3- Group insurance is often subsidized, partially or fully, while you pay 100% of any Personal policy premiums.

Now, you may be asking why I feel qualified to talk about these things.  I worked for BlueCross BlueShield of Texas, processing claims and then providing phone and written customer service for the Texas Health Insurance Risk Pool for about three years.  After that, I stayed in Health Care IT until about 18 months ago. I've worked at a Claims Clearing House, assisting doctors and hospitals with getting their claims billed and submitted properly so they could be paid more quickly, and at a COBRA and FSA administrator.  I know health care.  Specifically, I know health insurance, how it works, and how it does not work.